Free Statement - District Court of Arizona - Arizona

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Merrick B. Firestone #012138 Veronica L. Manolio #020230 RONAN & FIRESTONE, PLC
ATTORNEYS AT LAW 9300 E. RAINTREE DRIVE SUITE 120 SCOTTSDALE, AZ 85260 TELEPHONE (480) 222-9100

Attorneys for Defendants ICG Group, Inc. and Michael Makings and Marcia Makings Michael R. King #005903 Gregory J. Gnepper #024085 GAMMAGE & BURNHAM
A PROFESSIONAL LIMITED LIABILITY COMPANY ATTORNEYS AT LAW TWO NORTH CENTRAL AVENUE 18TH FLOOR PHOENIX, AZ 85004 TELEPHONE (602) 256-0566

Co-Counsel for Defendants ICG Group, Inc. and Michael Makings and Marcia Makings UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Diane Mann, Trustee, et al., Plaintiffs, vs. GTCR Golder Rauner, L.L.C., a Delaware limited liability company; et al Defendants. _______________________________________ In re: Leapsource, Inc., Debtor. (Assigned to the Honorable Judge Robert C. Broomfield) CONTROVERTING STATEMENT OF FACTS No. CIV-0202099-PHX-RCB consolidated with No. CIV-02-2325-PHXRCB BK-01-9020-PHX-JMM Adv. No. 02-1202

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Diane Mann, Trustee, Plaintiff, vs. ICG Group, Inc., an Arizona corporation; Michael Makings and Marcia Makings, husband and wife, Defendants.

Defendants ICG Group, Inc. ( ICG Group ) and Michael and Marcia Makings ( Makings ) submit the following Controverting Statement of Facts in Response to the Motion for Partial Summary Judgment (Re: Count III) of plaintiff/trustee Diane Mann in the above-captioned Chapter 7 bankruptcy of Leapsource, Inc. ( Leapsource ): 1. Defendants agree with plaintiff s statement of fact number 1 as to the

nature of ICG s business generally, but note that the ICG business model has changed drastically under ICG Group from the business run by Leapsource. Affidavit of Michael Makings ¶ 6. 2. Defendants agree with plaintiff s statement of fact number 2, that Makings

founded the ICG business and was a 50% shareholder, one of two directors, and president of ICG Consulting, Inc. ( ICG Consulting ). 3. Defendants agree with plaintiff s statement of fact number 3, that

Leapsource purchased the ICG business from ICG Consulting, and that ICG Consulting assigned a $2.5 million promissory note received in this transaction to Makings. 4. As to plaintiff s statement of fact number 4, defendants agree that

Leapsource hired Makings as an employee to work within the ICG division. Defendants dispute that Makings was ever formally appointed as Leapsource s Chief Operating Officer. He performed some tasks a Chief Operating Officer might perform, but he resigned these duties on December 15, 2001. At this point, the board of directors even instructed him to stay away. Makings then accepted the Chief Executive Officer

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position in a last chance effort to salvage Leapsource on February 27, 2001, after Leapsource lost its primary financier, GTCR Golder Rauner ( GTCR ), and subsequently fired its former CEO, Plaintiff Christine Kirk. The survival of Leapsource was entirely dependent on receiving additional financing, and Makings spent his time as CEO soliciting financing for Leapsource. Affidavit of Michael Makings ¶¶ 2-3; see, e.g., Deposition of Michael Dean Makings at 83, 153-54, 168-71, 177 (June 10, 2005). 5. Defendants agree with plaintiff s statement of fact number 5 that Makings

accelerated the balance owed to him on the promissory note after Leapsource defaulted. 6. Defendants agree that Makings incorporated ICG Group and has been its

sole shareholder and director, but otherwise dispute plaintiff s statement of fact number 6. The final decision of ICG Group to acquire the ICG business from Leapsource was only made after Makings resigned all positions with Leapsource, which came after it became apparent that Leapsource had insufficient funds and could not procure additional funding to continue the ICG business. Affidavit of Michael Makings ¶¶ 4-5. 7. Defendants agree with plaintiff s statement of fact number 7 that Makings

formally resigned his positions at Leapsource on March 20, 2001. Defendants do not dispute that Leapsource s board of directors formally accepted this resignation as effective March 22, 2001, but denies that the resignation was not effective when it was tendered. After resigning, Makings retained no control or influence over Leapsource s affairs. The Chief Restructuring Officer, David Eaton, was assigned to wind up Leapsource. Affidavit of Michael Makings ¶ 4. 8. Defendants dispute plaintiff s statement of fact number 8. Defendants

admit that ICG Group purchased the ICG business from Leapsource. The Asset Purchase Agreement was actually signed on March 30, 2001, but it contained a typewritten date of March 23, 2001. Pursuant to its terms, the actual transfer occurred on March 30, 2001. Defendants dispute that the consideration consisted almost entirely of ICG Group s

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forgiveness of the promissory note, under which Leapsource owed $2,748,526. Under the Asset Purchase Agreement, ICG Group also agreed to assume several third party liabilities owed by Leapsource, including telephone lease payments, building lease payments, copier lease payments, various accounts payable, and past and future payroll expenses. ICG Group has paid these third party obligations in their entirety. The total consideration received by Leapsource for the ICG business was $4,039,000. This total consideration received by Leapsource exceeded the fair market value of the ICG business. Leapsource s attorneys at Osborn Maledon, who also represent Leapsource in its bankruptcy petition, drafted the document. Eaton and the Leapsource board of directors believed the sale was fair as well, and approved the transaction on Leapsource s behalf. Affidavit of Michael Makings ¶ 5, 7-9; Exhibit A, Asset Purchase Agreement at § 1.3; Plaintiff s Exhibit 3, Expert Report of Edward M. McDonough ( McDonough Report ) at 27-29, 35-36; see, e.g., Deposition of Michael Dean Makings at 280 (June 10, 2005). 9. ICG Group s primary motivation in purchasing the ICG business was to use

the ICG name to attract and retain clients. The actual assets that ICG Group acquired were some tangible office supplies and various forms of intellectual property. ICG Group never actually used the intellectual property, and has no need for it. The current ICG business differs drastically from the business formerly run by Leapsource. Affidavit of Michael Makings ¶ 6; See, e.g., Deposition of Michael Dean Makings at 36-39 (June 10, 2005). 10. Defendants admit that McDonough valued the ICG business as described in

plaintiff s statement of fact number 9, although the date of this valuation is one week prior to the date the ICG business was transferred. However, this appraisal uses a valuation method for an ongoing business, considering control premiums, expected revenues, intercompany receivables, and cash flows. McDonough s report notes that

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under the Asset Accumulation Method, or Liquidation Method, the fair market value of the ICG business was $250,000. The final conclusion differed because this liquidation value was out of line with the various indications of value using the other goingconcern methods. The report also noted that if the Company s performance does not change for the better in the short-term future, the Company would have to consider liquidation. 11. Affidavit of Michael Makings ¶ 9-10; McDonough Report at 31-40. Defendants agree with plaintiff s statement of fact number 10, that the

transfer of the ICG business occurred on March 30, 2001. 12. Defendants agree with plaintiff s statement of fact number 11, that ICG

Group still owns and operates the ICG business. 13. Defendants admit that McDonough described Leapsource as described in

statement of fact number 12. Defendants point out, however, that this figure 14. Defendants have no knowledge of, and therefore deny, the extent of assets

in Leapsource s bankruptcy estate as suggested by plaintiff s statement of fact number 13. Defendants also point out that this figure necessarily excludes the $9.5 million lawsuit of Leapsource in the GTCR litigation. Affidavit of Michael Makings ¶ 11. 15. Defendants dispute any facts not expressly addressed in this Controverting

Statement of Facts or the accompanying Response. DATED this 22nd day of March, 2006.

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RONAN & FIRESTONE P.L.C.

By__Merrick B. Firestone #012138 Merrick B. Firestone Daniel P. Jensen 9300 East Raintree Drive, Suite 120 Scottsdale, Arizona 85260 Attorneys for Defendants ICG Group, Inc. and Michael Makings and Marcia Makings GAMMAGE & BURNHAM P.L.C.

By

Gregory J. Gnepper #024085 Michael R. King Gregory J. Gnepper Two North Central Avenue, 18th Floor Phoenix, Arizona 85004 Co-counsel for Defendants ICG Group, Inc. and Michael Makings and Marcia Makings

ORIGINAL filed and COPY delivered this 22nd day of March, 2006, to:

Via Hand Delivery Honorable Judge Robert C. Broomfield U.S. District Court, District of Arizona 401 West Washington Phoenix, Arizona 85003

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Via U.S. Mail Steven J. Brown Steven D. Nemecek STEVE BROWN & ASSOCIATES, LLC 1414 East Indian School Road, Suite 200 Phoenix, Arizona 85014 Via U.S. Mail Kevin A. Russell David S. Foster Patrick E. Gibbs LATHAM & WATKINS, LLP Sears Tower, Suite 5800 Chicago, Illinois 60606 Attorneys GCTG Golder Rauner, L.L.C., et al Via Hand Delivery Don P. Martin Edward A. Salanga QUARLES & BRADY STREICH LANG, LLP One Renaissance Square Two North Central Phoenix, Arizona 85004-2391 Attorneys GCTG Golder Rauner, L.L.C., et al Via U.S. Mail Richard A. Halloran Jon Weiss LEWIS & ROCA LLP 40 North Central Phoenix, Arizona 85004-4429 Attorneys for Defendants David Eaton and AEG Partners LLC

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Via U.S. Mail John Bouma James R. Condo Patricia Lee Refo SNELL & WILMER LLP One Arizona Center 400 East Van Buren Phoenix, Arizona 85004 Attorneys for Defendant Kirkland & Ellis Via U.S. Mail Leo L. Beus Scot C. Stirling Steven E. Weinberger Kevin Berger BEUS GILBERT PLLC 4800 North Scottsdale Road, Suite 6000 Scottsdale, AZ 85251 Attorneys for Individual Plaintiffs and Trustee
/s/ Jackie Benton___________________________

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